What is the triple lock on pensions?

We delve into what the triple lock on the state pension means for you, whether it's at risk and what the consequences might be for current and future recipients of the state pension.

The UK government introduced the state pension triple lock in 2010 in a bid to safeguard pensioners against the risk that the real value of the pension they received would be eroded by inflation. In effect, it’s a guarantee that pension payments will keep pace with inflation. But its future has been uncertain over recent years, thanks to factors such as the coronavirus pandemic, followed by very high inflation in 2022. This guide outlines the key things you need to know about the triple lock on pensions and how it affects you.

How does the triple lock on pensions work?

The triple lock is effectively a guarantee on the value of the UK state pension. It’s designed to ensure that the pension payment you receive doesn’t lose value due to inflation.

It guarantees that the state pension will rise by the highest of 3 measures of growth:

  • Price inflation, as measured by the Consumer Price Index (CPI) in the previous September
  • Average earnings
  • 2.5%

What this means is if, say, the CPI rises by 4% (assuming average wage increases are lower than this), then the state pension will also rise by 4%. But even if both the CPI and average earnings increase by less than 2.5%, the state pension will still get a 2.5% boost.

Who qualifies for triple lock pensions?

As it stands, everyone that is currently receiving the basic state pension (if you reached the state pension age before April 2016) or the new state pension (if you reached the state pension age from April 2016) qualifies for the triple lock. It also protects any future state pension allowance of those who are yet to retire. Our full guide to the state pension outlines its eligibility criteria.

The triple lock only applies to state pensions. It doesn’t apply to any money held in private or workplace pensions.

What does the triple lock mean for me?

The benefits of the triple lock if you’re already receiving the state pension are fairly evident.

If you’re not yet receiving the state pension, but expect to receive it when you reach retirement age, then the situation may seem less clear-cut.

Why is the triple lock good for pensioners?

If you’re already receiving your state pension, the triple lock gives you certainty that your state pension income will rise by at least 2.5%. It’ll be more if inflation or average earnings increases are higher.

It means that, at the very least, your spending power shouldn’t decrease during your retirement. If this wasn’t the case (for example, if there was no link to CPI), over time there would be a risk of purchases becoming less affordable. Let’s say, for the sake of argument, that CPI increased by 5% each year (that’s your spending on things like food, energy and transport – pretty much everything you’re likely to spend money on except housing costs), but your state pension only increased by a fixed 2.5%. Over time, the cumulative effect could have a serious impact on your ability to buy what was once affordable.

The triple lock prevents this scenario. It also means that if CPI and earnings increases are lower than 2.5%, you could even see your spending power improve over time.

What does the triple lock mean for those not yet receiving their state pension?

It’s easy to assume that the triple lock only benefits those already receiving their state pension. But the triple lock also protects the value of any future state pension you receive, so you can feel certain it will be worth having when the time comes.

There are, of course, caveats to this. If the company you work for announces a pay freeze, it can feel like a kick in the teeth to know that those who have already retired will get at least a 2.5% state pension increase. Plus, the state pension age has already been pushed back several years (you can find out when you’ll start receiving a state pension on the gov.uk website). There’s no guarantee it won’t be pushed back even further in the future, to the point that some younger people may wonder if they’ll even make it to whatever age they’re able to officially retire.

But, thinking more positively, the triple lock arguably protects those yet to retire even more than those who have already retired. That’s because the cumulative impact of inflation becomes more pronounced over longer periods.

Are there any downsides to the triple lock on pensions?

At least 2 arguments have been made against the triple lock, though not everyone agrees with them.

  1. It’s unsustainably expensive for the taxpayer. And every extra penny that goes towards paying for increases in the state pension is, it’s sometimes argued, restricting government spending in areas that need it more.
  2. It’s unfair. There’s an argument that guaranteeing increases for pensioners that exceed income rises for working-age people is difficult to justify. So, even if wages only increase by 1% on average, pensioners will still get at least 2.5%. Plus, there are anomalies such as the coronavirus pandemic that saw an artificial and temporary boost to earnings growth as incomes returned to normal after the furlough scheme. The timing of this was such that, had the triple lock not been suspended for 2022–23 (see below), state pensioners could have seen an increase of more than 8%.

The counter-argument to the latter point, in particular, is that young people benefit more from the triple lock than those who are already retired. That’s because it protects their future state pension income against being eroded by inflation over a longer period.

What happened to the state pension in the 2022–23 tax year?

In September 2021, the government announced that for 2022–23 the triple lock would be suspended and replaced by a double lock. This amendment would take earnings increases out of the equation, instead using the higher of CPI inflation or 2.5%.

In practice, this meant a state pension increase of 3.1% from April 2022, as this was the level of CPI inflation in September 2021. This is the month by which the following year’s increases are measured. The state pension therefore rose from £179.60 to £185.15 a week for those receiving the new state pension. The basic state pension rose from £137.60 to £141.85 a week.

If the government had not taken this step, the state pension would have been due to rise by 8%. This artificially high earnings growth was prompted by incomes returning to “normal” levels following a period of suppression during the coronavirus furlough scheme. This would have equated to a rise to £194 a week (new state pension) or £148.65 a week (basic state pension).

Was the temporary removal of the triple lock fair to pensioners?

Opinion is divided on this point. Some felt that the government should have stuck by its commitments and that using September 2021’s 3.1% CPI figure could result in a real-term loss of spending power for pensioners, as inflation rose further in subsequent months (in October 2021, it was 4.2%).

Others supported the move, acknowledging that an 8% increase would have come at too high a financial cost and risked government spending on other priorities, such as the social care system. There have also been concerns around intergenerational fairness, given many working-age people saw their incomes fall during the pandemic.

High inflation and the state pension triple lock

The government had promised to reinstate the triple lock for the 2023–24 tax year, but as of early October 2022, that plan seemed to hang in the balance. In the aftermath of the infamous “mini-budget” in September 2022, Downing Street and the Treasury initially refused to commit to the triple lock. This led many to speculate that the guarantee could be withdrawn.

The culprit this time was not high earnings growth, but high inflation – a government-target-busting 10.1% in September 2022. This is the month on which state pension increases the following year are based. It was felt by some that a more than 10% rise in state pension would be more than the government could stomach, potentially resulting in pensioners receiving state pension increases well below inflation.

However, at least at the time of writing (in late October 2022), the government has committed to maintaining the triple lock. This should see the new state pension rise from £185.15 to £203.85 a week from April 2023; the basic state pension should rise from £141.85 to a week.

What’s the future of the state pension triple lock?

The concerns about the state pension triple lock pre-date the events leading to an extended period of high inflation in 2022 (and likely beyond). They pre-date COVID-19, too. And given the tumultuous state of the UK government at the time of writing, almost nothing is certain. So there’s no guarantee that the triple lock won’t be removed again (temporarily or permanently) at some point in the future.

What would happen to my state pension without the triple lock?

That depends in large part on what the triple lock was replaced with. There are a few possibilities, including the following:

  • Replacing it with a double lock that takes into account the highest of CPI or earnings increases, but removing the 2.5% minimum guarantee. This would mean the state pension would still rise by inflation, but wouldn’t exceed it if both wage increases and CPI fell below 2.5%, as has happened a few times in the past.
  • Replacing it with a single lock that takes into account either CPI or earnings, but not both. This could risk the spending power of those that rely on the state pension (including future pensioners) deteriorating in the medium to long term.
  • Removing any sort of lock (or guarantee) and returning to the situation before the triple lock came in where state pension increases were decided ad hoc by the chancellor in the annual budget. This worst-case scenario is unlikely in the short to medium term, as political appetite for such a move is likely to be low. After all, retaining the triple lock was a Conservative manifesto pledge in 2019. But it can’t be ruled out in the long term.

If the protection of the triple lock is significantly eroded, the impact is likely to be greatest on those yet to retire, due to the cumulative impact of inflation if state pension increases don’t keep up. This could make the state pension much less worth having by the time younger people retire. Existing state pensioners will also take a hit, of course, but they’re unlikely to feel it as much over the relatively short time they’ll be affected.

What can I do to safeguard my retirement income?

Danny Butler

Finder insurance expert Danny Butler answers

What happens to the state pension in the future, and the maximum amount any of us will receive, is largely out of our control.

But, for many, the state pension will only form part of our retirement income. To help make sure you have a comfortable retirement, save as much as you can into a workplace or personal pension. Even with the triple lock, the state pension isn’t all that generous (the full new state pension is only worth £185.15 a week, or £9,627.80 a year, as of the 2022–23 tax year). For most people, it shouldn’t be something to rely on in isolation.

Bottom line

The state pension triple lock remains the subject of hot debate. While some maintain that it’s essential to protect current and future state pensioners from erosion of their spending power, others argue it’s too expensive to be sustainable. Regardless of what happens to the state pension in the future, you can take action to secure a financially sound retirement by also saving into a workplace or personal pension.

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